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F ederal Reser ve Ba n k o f D allas DALLAS, TEXAS 75222 Circular No. 75-144 September 29, 1975 AMENDMENTS TO REGULATIONS G, T , AND U "Same-Day S u b s titu tio n " Limitation to Be R ein stated at 3 0 -P e r c e n t Level on November 3, 1975 TO ALL BANKS, BROKERS/DEALERS, REGULATION G REGISTRANTS, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: T h e Board of G o v e rn o rs of th e F ederal R e s e r v e System a n n o u n c e d th a t effective November 3, 1975, it will r e in s t a te a r u l e th a t limits th e u s e of th e s a m e - d a y s u b s titu tio n p r i v i l e g e in stock m a rg in a c c o u n ts . U n d e r th e re in s t a te d r u l e , u s e of the s a m e - d a y s u b s titu tio n p r i v i l e g e will be lim ited to acco un ts with a n e q u ity of 30 p e r c e n t o r m ore of th e m a rk e t v a lu e of th e stock co lla t era l in th e a c co u n t. T h is ratio had been s e t a t 40 p e r c e n t p r i o r to s u s p e n s i o n of the p r i v i l e g e last November 4. T h e ru le was s u s p e n d e d to p e r m it th e B oard to c o n s i d e r th e impact of th e r u l e on m a rg in c u s t o m e r s , b r o k e r a g e fi r m s , and th e stock m a rk e t . T h e s u s p e n s i o n e x p i r e s on S e p t em b er 30, 1975, b u t th e Board e x te n d e d it t h r o u g h November 2, 1975, to allow b r o k e r a g e firm s time to m ake th e n e c e s s a r y o p e r a t i n g a n d c o m p u ter c h a n g e s p r i o r to re in s ta te m e n t. In a n n o u n c i n g th e r e in s t a te m e n t , th e Board said th e b en efits of th e r u l e —w hich is d e s i g n e d to im prove the q u a lity of m a rg in c r e d i t —ou tw eig h a n y potential a d v e r s e effects. U n d e r th e s a m e - d a y s u b s t it u t i o n p r i v i l e g e , c u s to m e rs a r e p erm itte d to s u b s t it u t e one s e c u r i t y for a n o t h e r in t h e i r ac co u n ts th r o u g h offsetting p u r c h a s e s an d s a le s made on the same d a y , without a p p l y i n g ad dition al m a rg in for th e p u r c h a s e o r u s in g an y of th e p r o c e e d s of th e sale to s t r e n g t h e n an ac c o u n t th a t is below the initial m a rg in r e q u ir e m e n t . T h e re in s ta te m e n t a p p l i e s to e x te n s io n s of c r e d i t by b r o k e r s a n d d e a l e r s (R eg u la tion T) a n d loans by b a n k s a n d o t h e r l e n d e r s (R egulations U an d G, re s p e c tiv e ly ) for the p u r p o s e of p u r c h a s i n g o r c a r r y i n g s tock s r e g i s t e r e d on a national e x c h a n g e o r named on the B o a rd 's o v e r - t h e - c o u n t e r m a rg in list. In su b m ittin g th e am en d m en ts for p u b lic a tio n in th e FEDERAL REGISTER, the Board of G o v e rn o rs m ade th e following statem ent: T h e B o a rd 's s e c u r i t ie s c r e d i t r e g u l a t i o n s , P a r t s 207, 220, a n d 221 (R egulations G, T , a n d U ) , g e n e r a l l y r e q u i r e t h a t in th e c a s e of p u r c h a s e a n d - s a l e s u b s t it u t i o n s of s e c u r i t ie s in an u n d e r m a r g i n e d a c co u n t a specified This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - p ortion of th e sa le p r o c e e d s m ust be u s e d to s t r e n g t h e n the a c c o u n t. Until S ep tem b er 18, 1972, t h e r e was a n exem ption from t h a t r e q u ir e m e n t for all ac co un ts w hen both th e p u r c h a s e an d sa le w e r e ex e c u te d on th e sam e d a y . By am e nd m e n ts p u b l i s h e d in th e FEDERAL REGISTER a t 37 FED. REG. 13972, effective S e p te m b e r 18, 1972, th e B oard n a r r o w e d th e s a m e - d a y exem ption a n d limited it to a c c o u n ts in w h ich th e c u s t o m e r 's e q u ity was a t least 40 p e r ce n t. T h e limitation in th e S e p te m b e r 18, 1972, am endm ents was s u s p e n d e d tw ice, with th e e x is tin g s u s p e n s i o n s c h e d u le d for e x p i ra t io n on S ep tem b e r 30, 1975, w hile th e B oard re v ie w e d the a p p r o p r i a t e n e s s o r i n a p p r o p r i a t e n e s s of m aintainin g th e 40 p e r c e n t e q u i t y r e q u ir e m e n t with r e s p e c t to th e exem ption for s a m e - d a y s u b s t it u t i o n s . T h e B oard h a s d e t e rm in e d th a t th e limitation s ho uld a p p l y , u n d e r p r e s e n t c i r c u m s t a n c e s , to ac co u n ts in w h ich th e c u s t o m e r 's e q u ity is less than 30 p e r c e n t r a t h e r th a n 40 p e r c e n t . T h e s u s p e n s i o n from the limitation will be e x te n d e d th r o u g h November 2, 1975, to allow the i n d u s t r y time to make n ec essary adjustm ents. T h e s e am e n dm e nts a r e i s s u e d p u r s u a n t to th e a u t h o r i t y of section 7 of the S e c u r it i e s E x c h a n g e Act of 1934 (15 U . S . C . S ec. 78g) . T h e r e q u ir e m e n t s of 5 U . S . C . S ec. 553 with r e s p e c t to n otice, p ub lic p a r ti c ip a t io n , an d d e f e r r e d effective d ate w e r e not followed in connection with t h e s e am e n dm e n ts s i n c e th e y re lie v e r e s t r i c t i o n s a n d the Board found th a t to follow th e r e q u i r e m e n t s of section 553 would be im p rac tic al, u n n e c e s s a r y , a n d c o n t r a r y to th e p u b lic i n t e r e s t. Enclosed is a copy of th e a m e n d ed S u p p le m en ts to R eg u latio ns G, T , an d U, w hich sh o u ld b e filed in y o u r R eg ulation s b i n d e r . Additional copies will be f u r n is h e d upon r e q u e s t to th e S e c r e t a r y ' s Office of th is Bank. S in ce rely y o u rs , T . W. Plant F irs t V ice President Enclosure BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SECURITIES CREDIT TRANSACTIONS AMENDMENTS TO REGULATIONS G, T, AND U Effective September 3 0 ,1 9 7 5 PART 207 — SECURITIES CREDIT BY PERSONS OTHER THAN BANKS, BROKERS, OR DEALERS 1. Part 207 (Reg. G), paragraph (f) of § 207.5 (the Supplement to Regulation G) is amended by lowering the minimum equity ratio from 40 per cent to 30 percent and changing the final date of the suspension period from September 30, 1975, to November 2, 1975. The amended section reads as follows: SECTION 207.5 — SUPPLEMENT * * * * * (f) Minimum equity ratio. The minimum equity ratio of a credit subject to § 207.1 is 30 percent. For the period November 5, 1974, through November 2, 1975, all same-day substitutions of collateral permitted by section 207.1(j)(2) for credits in which the equity ratio equals or exceeds the minimum equity ratio shall also be permitted for all credits in which the equity ratio is less than the minimum equity ratio. PART 220 — CREDIT BY BROKERS AND DEALERS 2. Part 220 (Reg. T), paragraph (g) of § 220.8 (the Supplement to Regulation T) is amended by changing the figures to be used in the computation which appear in subparagraphs (1) and (2) and by changing the expiration date of the suspension in subparagraph (3) to November 2, 1975. The amended section reads as follows: 1968, and continuously thereafter, and of a margin equity security shall be 70 percent of the current market value of such security, and the maximum loan value of an exempted security held in the account on March 11, 1968, and continuously thereafter shall be the maximum loan value of the security as determined by the creditor in good faith. (2) The amount to be included in the adjusted d e b it b a la n c e of th e a c c o u n t p u rs u a n t to § 220.3(d)(3) as margin required for short sales of securities (other than exempted securities) shall be 30 percent of the current market value of each security. (3) For the period November 5, 1974, through November 2, 1975, all transactions permitted by §§ 220.3(b)(1) and 220.3(g) for accounts not sub ject to section 8(g) shall also be permitted in ac counts subject to section 8(g). PART 221 — CREDIT BY BANKS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCK 3. Part 221 (Reg. U), paragraph (f) of § 221.4 (the Supplement to Regulation U) is amended by changing the minimum equity ratio from 40 per cent to 30 percent and by changing the expiration date of the suspension period from September 30, 1975, to November 2, 1975. The amended section reads as follows: SECTION 221.4 — SUPPLEMENT * * * * * (f) Minimum equity ratio. The minimum equity ratio of a credit subject to § 221.1 is 30 percent. For the period November 5, 1974, through No * * * * * vember 2, 1975, all same-day transactions per (g) A cco u n t su b ject to se ctio n 8(g). For mitted by 221.1(c) for credits in which the equity p u rp o se s of th e c o m p u ta tio n d e sc rib e d in ratio is equal to or exceeds the minimum equity § 220.3(b)(l)(ii), ratio shall also be permitted for those credits in (1) The maximum loan value of a registered non which the equity ratio is less than the minimum equity ratio. equity security held in the account on March 11, SECTION 220.8 — SUPPLEMENT
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